Hollywood Is Investing Gobs Of Money In The Chinese Film Market

Hollywood is positioning itself for the rewards of an explosive new market – the famously difficult China.

The past two weeks has seen a flurry of deals and funding activity:

The Chinese media conglomerate DMG put together a $300 million film fund to cofinance tentpoles for studios.

Relativity Media set up a Chinese production and distribution partnership.

Legendary Entertainment, through its Legendary East, announced plans for a $220.5 million investment in a filmmaking venture aimed at the Chinese market.

It all makes sense – particularly now. China is one of the fastest-growing economies in the world, and it has a giant appetite for popular culture, making it the last enormous untapped market for Hollywood.

But DMG, Relativity and Legendary East -- notably small and nimble in every case -- will face structural challenges in trying to penetrate the glittering new market that Hollywood has in its sights.

Each has essentially the same game plan: They want to make “co-productions” under Chinese rules. But for films to qualify as Chinese co-productions, they must include at least one Chinese actor and have at least one sequence filmed in China. They also have to satisfy Chinese censors.

Legendary East will work with Huayi Brothers, a Chinese film conglomerate, to make its co-productions. Paul Y Engineering Group is investing $220.5 million and taking a 50 percent stake in the company, which will fund two English-language films per year for global audiences. Warner Bros., which has a longstanding relationship with Legendary, will distribute the movies outside of China.

Relativity is working with two state-owned companies that have the authority to approve movies that are imported to China. It plans to bring U.S. film to that country and to make an increasing number of co-productions.

While Legendary and Relativity have found Asian partners, DMG is the Asian partner. It is approaching U.S. studios to co-finance films that will be co-productions.

But China is a tricky market. In order to work there, companies have to partner with the government -- a government whose role is pervasive in every element of life. It imposes strict censorship on movies made there and on movies it allows to be imported. And it only allows 20 non-Chinese movies into the country each year.

And then there’s the issue of censorship. It's not exactly like working with the MPAA.

The Chinese government doesn’t allow movies that involve murder, violence, horror, evil spirits and devils. Or that reconstruct crimes or even reveal police investigatory techniques. Or that advocate nihilism, environmental damage, animal abuse or the capture or killing of rare animals.

While that prevents abominations like “Human Caterpillar,” it also makes movies like “The Godfather” out of bounds.

“Avatar” did well. But so did “Transformers,” “2012,” “Resident Evil: Afterlife” and “Twilight.”